As we enter the fourth quarter of 2021, it is crucial to consider the trends and challenges that may affect commercial real estate in 2024. In their annual report titled “The Top Ten Issues Affecting Real Estate,” global commercial property advisors, Counselors of Real Estate, have identified key concerns for the industry.
According to the report, political unrest and global economic health are currently at the forefront of these issues. The organization’s 1000 members also highlighted office occupancy/valuations, housing shortages and artificial intelligence as significant factors impacting real estate.
Here are some notable points from their top ten list:
1. Political Unrest and Global Economics
Geopolitical tensions such as ongoing wars in Ukraine and recent conflicts between Hamas-Israel continue to contribute to uncertainty in global economics. Mixed signals from economic indicators like inflation rates, interest rates,and liquidity levels further add to this unpredictability.
2.Return-to-Work vs Remote Work
While a majority (58%)of workers have returned full-timeto offices,the concept of hybrid work has emerged.This means that companies now prioritize office spaces with desirable amenities rather than just functional ones.Additionally,the shift towards suburban living has increased demand for suburban office space.
3.Housing Shortagesand Affordability Concerns
The US continues facing a severe shortageof affordable housing due mainlyto years of underbuilding.More householdsare turning towards renting instead off buying homes due to rising costs associated with homeownership.
4.Dataand Artificial Intelligence (AI)
Accurate measurement through access tonear-real-time data is becoming increasingly criticalfor investorsin today’s dynamic market.The report also suggests keeping an eye on proptech start-ups that improve data collection methods within CRE industry operations.
5.Labor Shortage Continues
Despitea strong labor market,a lack ofsufficiently skilledworkersremainsa challenge.On topofthis,lacksof clarity regarding whetherthe economy will experience recession or not adds to the uncertainty. The report notes that job growth drives demand for real estate, and population shifts are also influenced by job opportunities.
6.Population Migration
People are increasingly looking for affordable housing options and a more realistic cost of living.This has led to shifting populationsand jobs towards low-cost,low-regulation states.The report predicts that the US will become less CBD-centricand more focused on suburban or secondary markets in the future.
7.Liquidity and Interest Rates
As banks reduce their exposureto CRE,the market is experiencing tightening liquidity levels.Atthe same time,the Federal Reserve continues increasing interest rates.This has slowed down transaction activityin both commercial and residential real estate markets.
8.Remaking Supply Chains
The pandemic highlighted supply chain vulnerabilities,and as a result, there is now an increased focus on building resilient supply chains. The Golden Triangle (from Great Lakes to Texas)is considered centralto America’s logistics infrastructure.Furthermore,in terms of property value,moving forward,it will be essential to consider proximityto infrastructure,logistics,and availabilityof trained labor force.
9.Property Price Resets
As capital costs increase,cap rates decrease,resulting in lower property values.However,due to limited reliable data from recent transactions,it has been challenging todetermine appropriate values.Counselors of Real Estate anticipate this pricing uncertaintywill continue into 2024.
10.Aging Infrastructure Repair Needs
The Bipartisan Infrastructure Law passed as partoftheInfrastructureand Jobs Actof 2022will provide fundsfor improving America’s aging infrastructure.However,the report questions what types of infrastructuresare truly necessaryfor sustainingUS prosperity throughoutthe21st century.Many believe that current funding efforts may not be sufficient,and suggest involving local governments,private corporations,and non-profitsin financinginfrastructure projects.
In conclusion,Counselors of Real Estate have identified these top ten issues impacting real estate industryas crucial factorsrequiring attentionas we move closer towards 2024.
